24 Comments:

There is exactly why AIG failed. If they cannot even cancel an annual hunting trip because they are insolvent then what chance to they have of ever being solvent! In hard times you must adapt ... its SINK OR SWIM ... unless you get free money from the US TAXPAYERS!

Will someone on the campaign trail mention the US FED and at least HINT they plan to eliminate it? NAH!!! America loves to reward failures!!

haha...it is the new American standard. Double down on every failure. haha. Keep in charge the corrupt CEOs, politicians, and ivy league educated thieves in place to come up with solutions. haha. And we wonder why we are in such a mess. Amy Goodman had Paul Craig Roberts on Democracy Now this morning who broght up the fact that it was Henry Paulson in 2004 (as Goldman Sachs CEO) who successfully lobbied the SEC to remove reserve requirements for investment banks....based on their new math based computer models that proved they didn't need these reserves. Boy...that worked out well didn't it. hahahaha. I just can't believe Paulson is in charge of the trillion dollars in tax payer money that is supposed to get us out of this mess. It truly boggles my mind. We(as Americans) are the most useless, ignorant, dependent people on the face of this planent. The world would be better off if we just sank into the ocean. Honestly TCR, I wish we had to courage to put pitchforks to these people. But we don't. Government education finally reached its goal (sometime in the 80s I think) and neutered the American public.

Don't you suspect this is just the tip of the iceberg. What we see. On the news they said, "Ain't I Greedy"-AIG probably wouldn't have done it if they knew it would be on the news. Yeh, right. Let's be honest, they just don't give a hoot.

It's interesting to read this, "How Did We Get Here?", written in 2002 after the stock market crash of 2000. I like the subtitle, "Much of what happened in the 1990s also happened in the 1980s." Here's hoping we don't do it again." I guess we can add "also happened in 2000's". Each decade seems to get worse.

Nell Minow's site is the only place that has consistently questioned executive compensation and corporate abuses. In the past, I read that Socially Responsible Mutual Funds would report and consider executive compensation and corporate abuses, thus controlling it, but it hasn't worked out that way.

I know this looks terrible, but the insurance subsidiaries of AIG are likely all properly capitalized because they fall under different regulations. These subs are part of the reason for the Treasury department stepping in to have a more orderly liquidation (sell-off) of these entities to repay the credit extended to keep the parent afloat.

The problem is that anything like this involving any part of AIG will be jumped all over by everyone.

Almost any kind of business around the world does events like this that act as rewards for significant sales production or to incent staff or customers. We can all look at it for what it is, and criticize it, but then we should criticize any corporate or government sponsored event like this.

This is likely a case of everyone jumping on an easy target.

I'm far more concerned about the way the overall system was "gamed" to allow products to sold by many financial intermediaries where the products themselves, the CDO's, the CDS's were flawed and yet which temporarily were allowed to be "booked" showing huge profits which were spun out as bonuses to all levels of management in the portions of these firms which administered those products. There seems to be little chance that the people who benefitted from that largesse will ever have it clawed back, or be called to account.

It is easy to jump on a division of AIG that is almost assuredly properly reserved, because it operates under insurance regulations, because it has the name AIG. No question that executives in those divisions must look at this because of the horrible image it creates, but if this was XYZ company, or a sales or customer event for photocopiers or laptop computer sales it would have gone unnoticed.

Just saying that events like this are not the problem. Operations like AIG's office in London which did most of the "financial engineering" were, and they took down a generally well run organization.

If AIG was "generally well run" then why did they fail? That would mean they were not generally well run in my book ...

I have been a small businessman since 1990 and in my first business as an electrical contractor I virtually had to prove I did NOT need a loan before a bank would give me a loan! Why isn't it that way with BIG BUSINESS and BIG BANKS? Probably because most would not qualify ... especially now!

I would suspect that TOBAN is part of that BIG regime where failure is rewarded and DEBT=WEALTH! That is the exact mentality that put us here!!

Is it any wonder that all this is happening on the "baby-boomer" watch where we have been schooled that IMAGE is everything even if you must rationalize failures to the Nth degree until it is spun into a success! Why else would a stock rally on meeting lowered expectations? HA!!

Preach it, Kaimu! I've been using that exact phrase for years! People call me a "doomer" or "Perma-bear". But when somebody points out a clear, logical hole in a system which is unaddressed, then all the years and decades of success that system might enjoy do not invalidate the "doomer's" criticism. TCR, of course, has a gift for spotting and explaining the holes in the system.

Ever since at least Reagan, Americans have fallen back on their laurels instead of reasoning, planning, and fixing the holes. So many, many arguments we dissenters had with the mainstream, always ended with "...but the market's done great so far! You can't argue with prosperity!" I.e., "The Iron Curtain fell so that proves America's brand of Capitalism is perfect, invincible!" This is not an argument anymore than past performance is a guarantee of future success! And over time, we Americans had come to rely on that spurious 'defense' so much that we intentionally blinded ourselves to indicators that we weren't still prosperous and successful, i.e., falling real wages, re-jiggling the Inflation measures. The successful who held all the levers of power (economic as well as political) became like a cargo cult, confusing the ritual lip service of praising America's prosperity, with prosperity itself, and thus any dissent had to be marginalized for fear of breaking the magic spell. Well guess what guys, the messenger has been shot but the bad news arrived anyway.

People, you are missing the point! How are these poor stressed out executives to recoup AIG's lost earnings when they are so stressed out? Nothing says "go get 'em, boys" like reloading and shooting stuff.

I get the bad PR image this produces, but how do you expect AIG to pay back the money given to them if they can't recognize and incentivize the people who sell their products? They should have been allowed to fail, the government did not allow them to fail, so they need to continue doing business and driving sales. You people are idiots to focus on this nonsense, focus your anger and sense of justice on Hank Paulson, George Bush, Chris Dodd, Barney Frank, Ben Bernake and the rest of the whores in the Senate and the House.

Thanks for assuming I'm a captain of industry Kaimu! I don't work for a big company, I've been self employed for 30 years. I don't even live in the US, but the fallout from this is worldwide. You think I'm defending this, when in fact I'm pointing out that this is a "McGuffin" which takes people's eyes off the real issue.

Posters like you are letting ideology run amok. AIG's insurance divisions were operated under pretty stringent regulation in all the jurisdictions they function in, both in the US and in other countries in the world. As such they had to have investments held under a pretty strict set of guidelines and according to the New York State Superinentend of Insurance, Eric Dinallo, a Democrat, they were in no danger, a point he went on TV immediately following the news of the problems to reassure policyholders.

The issue was that another part of the company was reckless, and because of the way the insurance regulations operate the reserves held in the insurance subsidiaries could not be used to back the losses in the other parts of the company. (which is as it should be).

Ergo, the bailout, and next will be the inevitable sale of many or all of these subsidiaries to raise the cash to pay off the funds advanced by the treasury. This is pretty well understood and is certainly one of the reasons that AIG was "saved" and Lehman was not. AIG had assets that were effectively "locked up" by the regulations covering insurance reserves, and which could not be used to collaterize borrowing.

Nowhere am I defending AIG's reckless decision to to ramp up with derivative instruments to boost profits. I was just saying that there are many parts to this story, and jumping on the $5 or $600,000 spent on these events is great for stirring the pot, but is a little like John McCain complaining about the Chicago Planetarium "projector" as the earmark that devastated the federal budget. As any simple investigation determines the reality is far different.

Finally, you don't know anything about me, you just assume, which is quite dangerous. Items like these events draw attention away from the real issues here. Companies were allowed to create divisions, and develop financial instruments that were quite effectively designed to get around regulations which would have prohibited or severly constricted their use. AIG just happened to be a large firm that had operations on both sides of the fence, and the bulk of the operations were on the heavily regulated side. That's the danger of the amount of financial leverage that occured. These were instruments of mass financial destruction run amok. In the end a company which had many well run divisions has failed because of these toxic products, run from a 377 person unit based in London England. (AIG Financial Products or AIGFP). However that takes several pages to explain. Far easier to print a quick headline about "executives" at a spa retreat.

Even the free market cheerleaders on the cable networks are shaking their heads over this one, and I guess that in part is what stirred me up. There are plenty of other more pertinent examples of the excesses, and one should start with the general compensation paid out in the financial system based of the sales of these products. Profits were "booked" and compensation was paid on products which had a big chance of blowing up. I'm not sure how those can be retroactively clawed back now.

TD- I understand, there is plenty to go around. I apologize for the idiot comment. It just pisses me off people are focusing on the AIG events. This is small potatoes compared to the fraud comitted by our govt and the big banks. These events AIG are holding, are standard incentive events, that most companies hold to recognize their top sales people. These events have a return on investment. They expect a return on the money they are spending to host these events. These are not events for AIG execs to go have a good time with the tax payers money. I think these stories are a mis-direction from the real story. I know that Goldman Sachs and Morgan Stanley executives will be busy sunning themselves in the Caribbean this winter, drinking painkillers and mojitos, laughing about this.

The MBA Presnit will be known for the bookends: the California Energy 'crisis' and the collapse of the credit and securities markets. In between: fall of WorldCom, Enron, WTC 1,2 & 7, Baghdad, New Orleans, etc. Point is: after Enron the malfeasance was writ large and the Administration/Congress gave us SOX. Fuckload of good that did. The predators simply migrated to unregulated chickencoops and rabidly defended the doors.

Kaimu, I would have to say that it is my firm belief that jumping all over Toban or any other commenting party for being whomever you may presume them to be is a dangerous and outright vile way to behave within an open forum. The purpose for allowing these forums to exist is that all may speak their minds freely, and without fear of consternation or personal attack. All have an opinion, and when we assail someone personally, simply for a difference of opinion, we limit the effectiveness of an open forum. Differing opinions operate like genetic differentiation. Without it, we eventually fail to adapt to a change in the environment. When that happens, we all die. I would suggest that anyone posting publicly to a forum or any other reserve incitements and insults for the privacy of your own mind. Free thought=progress. Debate the ideas, not the person.

"Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn, a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash (...)

At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business."

Let's be honest, this type of executive abuse of corporate resources has been going on for a long time now. No doubt it has gotten worse in the last 20 years. Stock options to by-pass financial reporting and transparency was probably the tipping point (thanks Congress for politicizing the FASB! Like Lieberman.).

Have we just traded dollar currency for stock currency? Doesn't that make shareholder dilution the same as devaluing the dollar, the Fed using the printing presses. We've just transferred the printing presses to the CEO's. Since they are king over this process, they "print" 1 share for all the shareholders, and "print" 500 to put in their own pocket. And they got Congress to lower the tax rate to 15% so they don't have to pay income taxes or employment taxes on it.

If Wages = Compensation, and StockOptions = Compensation : shouldn't StockOptions be taxed as wages and be on the financial statements like wages?

When the Fed bailed out Wall Street (especially with their plan version 1 - $700 billion no oversight), they could try to prop up the dollar, oh wait, stock, for the king, darn, CEO. Party on! I've got some birds to kill and money to burn with my cronies. As usual though, it has to get really bad before people get mad. I predict, people are mad today, but very little will change.

Isn't it time to stop being naive, stop the talking, stop being mad, and actually make a difference and do something positive about it. What they are doing is unethical and immoral, and not sustainable for a civil society.Is it illegal? Yes? Because they have a fiduciary responsibility to manage the company responsibly. "God" help the world, if this type of "management" gets exported to the rest of the world.

American management gone amok. All the talk is about money and stocks. We've lost our focus. We lost our focus of making quality products and providing quality service. Of respecting and educating our employees and customers. We need to get back to the basics of business, banking, communities, and people.

What do you make of this interview with Chris Mathews with Michelle Bachmann. "On the October 17 episode of MSNBC's Hardball, Rep. Michele Bachmann of Minnesota claimed that Barack Obama and other members of Congress share anti-American views. Bachmann thinks that anyone who disagrees with her personal political agenda is unpatriotic. But she is the one who has a lot to learn about what it means to love America."

And McCain is using the very same robo-call company that Bush/Rove used against him in 2000 to make disgusting telephone calls.

Stephen J. Bensinger, AIG CFO, should have been hauled before Congress to testify about what he knew, when he knew it and who he told it to.

A senior underwriter at a reinsurance company told me that AIG held "exotic" financial instruments that it had marked down to 86% of cost. But Merrill Lynch held the exact same "exotic" financial instrument but marked down to 22% of cost.

AIG's contention was that the "exotic" financial instruments had not been traded so no market price had been established.

When Merrill Lynch was sold on 9/15/08 and the "exotic" financial insturments were sold at 22% of cost, a market price was established and AIG's liquidity crisis began.

Just like in the Refco case, Wall Street and Barney Frank conveniently ignored this warning by Price Waterhouse Cooper in the AIG 12/31/07 10-K:

".. As of December 31, 2007, controls over the AIGFP super senior credit default swap portfolio valuation process and oversight thereof were not effective. AIG had insufficient resources to design and carry out effective controls to prevent or detect errors and to determine appropriate disclosures on a timely basis with respect to the processes and models introduced in the fourth quarter of 2007. As a result, AIG had not fully developed its controls to assess, on a timely basis, the relevance to its valuation of all third party information. Also, controls to permit the appropriate oversight and monitoring of the AIGFP super senior credit default swap portfolio valuation process, including timely sharing of information at the appropriate levels of the organization, did not operate effectively. As a result, controls over the AIGFP super senior credit default swap portfolio valuation process and oversight thereof were not adequate to prevent or detect misstatements in the accuracy of management’s fair value estimates and disclosures on a timely basis, resulting in adjustments for purposes of AIG’s December 31, 2007 consolidated financial statements. In addition, this deficiency could result in a misstatement in management’s fair value estimates or disclosures that could be material to AIG’s annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

Solely as a result of the material weakness in internal control over the fair value valuation of the AIGFP super senior credit default swap portfolio described above, AIG management has concluded that, as of December 31, 2007, AIG’s internal control over financial reporting was not effective based on the criteria in Internal Control — Integrated Framework issued by the COSO..."

Does anyone think that Secretary of the Treasury Henry Paulson was suprised about what happened at AIG subsequent to 9/15?

I don't think Paulson has been surprised by anything. He is an evil genius. What can you say about a guy who got out at the top and went to work for the government! What a great way to hide your tracks.

Isn't it time to stop being naive, stop the talking, stop being mad, and actually make a difference and do something positive about it. What they are doing is unethical and immoral, and not sustainable for a civil society.

Make a difference how? The government regulators will be looking for jobs with these banks, think they are going to lower their future pay, or indict their future employers? Ha

There is nothing to be done here. They are going to gobble up the $700B and come back for more, and they'll get it. The point is: it's not even worth getting angry over. They don't care what you think and there is nothing you can do about it. They are going to lookout for themselves load up on as much cash as they can and leave the rest of us to swing by the neck.